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Intent to use or to abuse? Consequences of improper trademark management

The facts and circumstances that the Supreme Court of Appeal (SCA) was seized with in Etraction (Pty) Ltd v Tyrecor (Pty) Ltd 2015 ZASCA 78 (May 28 2015) are an object lesson for trademark owners in how not to manage their affairs.

It was common cause that Etraction (Pty) Limited had adopted the mark INFINITY in 1995 for its motor vehicle wheel rim products and had established a business and reputation in wheel rim products under that mark. However, prior to 2008 it had taken no steps to register this trademark in respect of wheel rims or any other related products, although it had registered other trademarks for other products.

In the interim, in 2006 Tyrecor (Pty) Limited's predecessor in business, Falck, commenced importing and selling tyres bearing the INFINITY mark. This mark had been used internationally by the Al Dobowi Group following a launch of its Infinity tyres in Germany in that year. Tyrecor (Pty) Ltd, in which the Al Debowi Group was an indirect shareholder, succeeded in 2008 to the Falck business of importation and distribution of Infinity tyres.

The court found that the evidence showed that there was awareness from 2006 of the sale of Infinity tyres in South Africa, and that Etraction was aware of this because – among other things – it had exhibited together with the then-importer and distributor, Falck, at the Tyre Expo Africa 2006 exhibition, where the latter was promoting its Infinity tyres.

Etraction took no steps in 2006 or thereafter to object to Falck's importation and distribution of Infinity tyres. Had Etraction objected to Falck's use in 2006, the objection might then have been warranted. It had a reputation in the mark INFINITY in respect of motor vehicle wheel rims and might then, with some justification, have contended that its use on tyres would likely be associated with its own wheel rim business.

Instead, Etraction sat by while Falck from 2006 onwards, and Tyrecor from 2008 onwards, increased the distribution and advertising of Infinity tyres. Moreover, it appears that Etraction progressively acquiesced in Tyrecor obtaining vested rights in its business of promoting and distributing tyres under the INFINITY mark. On March 17 and 18 2008 Tyrecor addressed emails to Etraction offering to supply it with Infinity tyres. The emails enclosed photographs of the tyres that Tyrecor was offering to supply and set out the prices at which it was offering the tyres. On March 26 2008 Tyrecor sent an email recording a meeting its representative had with Etraction's representative. It read as follows:

"I would once again like to thank you for affording me the time to meet with both of you today to introduce our products. We are very proud of the INFINITY brand and believe that we will be able to add value to your organization.

I sincerely hope that we can establish a beneficial relationship in the near future. Please do not hesitate to contact me should you require any additional information."

Within three weeks of that meeting, Etraction applied for registration of the INFINITY mark in relation not only to wheel rims for vehicles, but also to tyres. However, it had not conveyed to Tyrecor – either at the March 2008 meeting or when filing its application to register the INFINITY mark shortly thereafter – that it objected to Tyrecor using the mark. Nor did it give any notice of its application to Tyrecor until it had secured registration of the mark, which occurred on May 19 2011. During the three years between the date of its application and registration, Tyrecor continued to trade and build up its business in the sale of Infinity tyres without any inkling that Etraction objected thereto, or that it intended itself to enter the market for tyres under that brand name. In 2011 Tyrecor's turnover from this trade exceeded R100 million.

Decision

On the basis of the facts and Etraction's evidently supine and acquiescing conduct, the SCA confirmed the partial expungement by the first-instance court of Etraction's Registration 2008/08612, removing "tyres" from the specification, and in so doing upheld the dismissal of Etraction's claim for infringement by Tyrecor. The basis in law for this finding, which involved a consideration of the meaning of good faith for two separate and distinct purposes, was as follows.

Trademark infringement and defence of 'prior use'

On securing registration in May 2011 of its INFINITY mark in Class 12 covering both wheel rims and tyres, Etraction instituted infringement proceedings against Tyrecor.

Tyrecor raised a defence under Section 36(1) of the Trademarks Act. This section precludes a trademark owner from interfering with or restraining a third party from using the same (or a confusingly similar) mark if the third party has made continuous and good-faith use of the mark in question from a date prior to the registrant's first use or registration of the mark, whichever was the earlier.

On the facts summarised above, the SCA held that Tyrecor (initially through its predecessor in business Falck and thereafter itself since 2008) had enjoyed continuous and good-faith use of the INFINITY mark in respect of tyres from a date prior to Etraction's application (ie, 2008) to register the mark in respect of tyres, among other things; and thus that Section 36(1) applied.

Etraction's contention that Tyrecor had no rights arising from its distribution of Infinity tyres (ie, that it was not the manufacturer that had applied the mark to the tyres and thus was not the owner of the mark) was dismissed on the basis that Tyrecor had established user rights in its business in the distribution and promotion of Infinity tyres – and more specifically, that its interest in a business in goods under that mark was protectable for purposes of Section 36(1).

Intent to use, or to abuse?

The second context in which the meaning of good faith was considered on appeal related to Etraction's own intention to use the INFINITY mark in respect of tyres. On the facts, the first-instance court found that Etraction had never had any good-faith intention to use the INFINITY mark on tyres, holding in this connection that its conduct in obtaining a registration covering tyres was for an ulterior purpose and was carried out surreptiously. It accordingly confirmed that the registration was liable to partial expungement by the removal of tyres from its specification.

The judgment canvasses in detail Etraction's failure in 2006, when it learned of Falck's commencement of the distribution of INFINITY tyres, to object to that distribution – and the adverse inferences to be drawn from that failure to object. This finding begs the question: had Etraction objected to Falck commencing distribution of Infinity-branded tyres in 2006, would continued use have been good-faith use of the INFINITY mark for purposes of a defence under Section 36(1)?

In making its finding on the issue of Etraction's good faith, the SCA cited with approval the judgment in Rembrandt Fabrikante en Handelaars (Edms) Bpk v Gulf Oil Corporation, in which it was held that "an ulterior purpose, unassociated with a genuine intention of pursuing the object for which the Act allows the registration of a trade mark and protects its use, cannot pass as a bona fide user".

It further cited the judgment in AM Moolla Group Ltd v The Gap Inc, in which it was held that:

"For present purposes, it suffices to say that 'bona fide' user means a user by the proprietor of his registered trade mark in connection with the particular goods in respect of which it is registered with the object or intention primarily of protecting, facilitating, and furthering his trading in such goods, and not for some other, ulterior object."

Similarly, the court referred to the European Court of Justice decision in Ansul, in which it held that: "When assessing whether use of the trade mark is genuine, regard must be had to all the facts and circumstances relevant to establishing whether the commercial exploitation of the mark is real."

Comment

The essence of a trademark is its capacity to distinguish one trader's goods and services from those of competing traders. This fundamental characteristic is the basis of the well-known dictum in Kinetex Africa (Pty) Ltd v Coverite (Pty) Ltd 1967(3) SA 307(10), citing Kerr On Injunctions, that "the life of a trade mark depends on the promptitude with which it is vindicated".

The facts in Etraction illustrate what occurs when rights in a trademark are not promptly vindicated – and confirms that failure to assert rights as soon as third-party conduct impinges on them allows such third parties to acquire vested rights. It shows further that obtaining a trademark registration while simultaneously acquiescing in the establishment of competing third-party rights will be of no avail, and will be regarded by the courts as sharp practice.

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